CFA Japan Seminar on September 19, 2019 - Valens Altimetry High Alpha - Prof. Joel Litman -

Valens Research - CFA Japan - Valens Altimetry High Alpha - Prof. Joel Litman - 2019 09 19

Transcript

1. Professor Joel Litman v.2014 04 12 FIDO HIGH ALPHA Professor Joel Litman September 2019 Valens Research/Altimetry Research 110 Cambridge Street, Cambridge, MA 02142 PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
2. What does it mean to “beat the market”? The market provides passive “beta” Beating the market: generating ALPHA PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
3. Our goal is HIGH ALPHA How do we get it? PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
4. Professor Benjamin Graham, Columbia From 1927 to 1954 “Security Analysis” 1935 CFA NY; 1942 CFA Proposal PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
5. Professor Benjamin Graham, Columbia From 1927 to 1954 “Security Analysis” 1935 NYSSA; 1942 CFA Proposal PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
6. Warren Buffett Berkshire Hathaway 1965-2017 20.8% versus S&P500 9.7% Net worth ~$80 billion PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
7. Charles Munger 19.8% from 1962–75 versus 5.0% DJIA Today, Vice-Chairman, Berkshire Hathaway Billionaire PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
8. David Sanford “Sandy” Gottesman First Manhattan Co. Net worth reached $3.5 Billion PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
9. Tom Knapp & Ed Anderson Tweedy Browne (launched in 1968) ALPHA PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
10. Walter Schloss WJS Partners 45 years of 15.3% vs. S&P500 ALPHA PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
11. William Ruane Ruane Cuniff, Sequoia fund 15.48 percent annually from 1969 to 2005 PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
12. $50k in 1947 $850++mn Davis Funds >>$100 Bn Shelby C. Davis Founder, Shelby Collum Davis & Co. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
13. Professor Benjamin Graham, Columbia From 1927 to 1954 “Security Analysis” 1935 NYSSA; 1942 CFA Proposal PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
14. $50k in 1947 $850++mn Davis Funds >>$100 Bn President of CFA NY 14 articles: CFA FAJ Shelby C. Davis Founder, Shelby Collum Davis & Co. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
15. Marty Whitman, Third Avenue Value Fund PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
16. Marty Whitman, Third Avenue Value Fund PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
17. Marty Whitman, Third Avenue Value Fund PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
18. Seth Klarman PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
19. Seth Klarman Baupost PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
20. Seth Klarman PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
21. Seth Klarman PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
22. Seth Klarman PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
23. Seth Klarman PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
24. Seth Klarman PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
25. Seth Klarman Baupost PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
26. 26 What patterns are common amongst the greatest investors ever? …the greatest identifiers of long-term wealth creation… PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
27. “…although accounting is the starting place, it’s only a crude approximation.” Charlie Munger PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
28. “ ...the net earnings figure… it really is not representative of what's going on in the business at all.” Warren Buffet, Opening Remarks, the 2018 Berkshire Hathaway Annual Shareholders Meeting PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
29. GAAP rules... I’ve warned you about the distortions. The bottom line figures… totally capricious. It’s really a shame. Warren Buffet, Opening Remarks, the 2019 Berkshire Hathaway Annual Shareholders Meeting PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
30. The new GAAP rules... I’ve warned you about the distortions. The bottom line figures… totally capricious. It’s really a shame that the rules got changed that way. “Not everybody studied accounting...” Warren Buffet, Opening Remarks, the 2019 Berkshire Hathaway Annual Shareholders Meeting PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
31. “Generally Accepted Accounting Principles are not truth or reality.” Martin Whitman PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
32. "...analysis of reported earnings can mislead investors as to the real profitability of a business.” Seth Klarman PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
33. "Always restate financials when valuing companies." Jean-Marie Eveillard Morningstar Fund Manager of the Decade for Non-U.S. Stocks. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
34. “The fact that IFRS provides more opportunity for the application of judgment… only adds to the risk” - Dr. Barry Jay Epstein PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
35. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
36. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
37. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
38. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
39. $4Bn $85Bn AMZN PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
40. AMZN PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
41. Publications and Speeches in the 1940s and 1950s UNIFORM ACCOUNTING Shelby C. Davis Founder, Shelby Collum Davis & Co. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
42. FB PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
43. 700 TENCENT PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
44. Who is reading Uniform Accounting (UAFRS) Research? PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
45. 9 out of 10 180 out of 300 PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
46. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
47. "Earnings quality factors assess the quality and sustainability of the earnings of each company.” Ronald Kahn Global Head of Scientific Equity Research Blackrock PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
48. TSLA PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
49. PLNT PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
50. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
51. “There is an undeniable, powerful link between return on assets and firm valuations… …one far more difficult to see without uniform accounting.” David Daglio Fmr. CIO Equities $50+; Mellon B.O.D. $550+ PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
52. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
53. IBM E P S $109Bn $79Bn PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
54. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
55. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
56. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
57. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
58. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
59. UNIFORM ACCOUNTING HIGH ALPHA STOCK IDEAS TRUE EARNINGS DATABASE Shelby C. Davis Founder, Shelby Collum Davis & Co. PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
60. Professor Joel Litman v.2014 04 12 FIDO VALENS RESEARCH Cross-Capital Investing Credit to Equity – Equity to Credit Joel Litman July 2019 Valens Research 110 Cambridge Street, Cambridge, Massachusetts 02141 joel.litman@valens-research.com PRIVATE AND CONFIDENTIAL: This document is confidential and contains proprietary information. Neither the document nor any of the information contained herein may be reproduced or disclosed to any person under any circumstances without express written permission.
61. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE MERITS OF OR GIVEN ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE PROPOSED OFFERING BY VALENS RESEARCH, LLC, NOR PASSED UPON THE ACCURACY OR COMPLETENESS OF THIS EXECUTIVE SUMMARY. IN MAKING AN INVESTMENT DECISION, EACH PROSPECTIVE INVESTOR MUST RELY ON ITS OWN EXAMINATION OF VALENS RESEARCH, LLC AND THE TERMS OF THE OFFER DESCRIBED IN THIS EXECUTIVE SUMMARY, INCLUDING THE MERITS AND RISKS INVOLVED. ANY SECURITIES OFFERED BY VALENS RESEARCH, LLC HAVE NOT BEEN REVIEWED OR RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THESE AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THE MEMBERSHIP INTERESTS OF VALENS RESEARCH, LLC HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, THE APPLICABLE STATE SECURITIES LAWS, AND VALENS RESEARCH, LLC’S LIMITED LIABILITY COMPANY AGREEMENT. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF ANY INVESTMENT IN MEMBERSHIP INTERESTS FOR AN INDEFINITE PERIOD OF TIME. THE STATEMENTS CONTAINED IN THIS EXECUTIVE SUMMARY ARE BASED ON INFORMATION BELIEVED TO BE RELIABLE. NO WARRANTY CAN BE MADE AS TO THE ACCURACY OF THIS INFORMATION OR THAT CIRCUMSTANCES HAVE NOT CHANGED SINCE THE DATE THIS INFORMATION WAS SUPPLIED. THIS EXECUTIVE SUMMARY CONTAINS SUMMARIES OF CERTAIN PROVISIONS OF DOCUMENTS AND DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE TEXTS OF THE ORIGINAL DOCUMENTS, WHICH ARE AVAILABLE UPON REQUEST. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE DELIVERY OF THIS EXECUTIVE SUMMARY AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF ITS ISSUE. THIS EXECUTIVE SUMMARY DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, A SECURITY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. RECIPIENTS OF THIS EXECUTIVE SUMMARY SHOULD NOT CONSTRUE THE CONTENTS OF THIS SUMMARY AS LEGAL OR TAX ADVICE. EACH PERSON CONSIDERING AN INVESTMENT IN VALENS RESEARCH, LLC SHOULD CONSULT WITH HIS OR HER OWN LEGAL AND ACCOUNTING ADVISORS AS TO LEGAL, TAX, LIABILITY AND RELATED MATTERS INVOLVED IN BECOMING A MEMBER OF VALENS RESEARCH, LLC. THIS EXECUTIVE SUMMARY CONTAINS CERTAIN PROJECTIONS. PROJECTIONS ARE HYPOTHETICAL AND BASED UPON PRESENT FACTORS INFLUENCING THE BUSINESS OF THE COMPANY. ASSUMPTIONS REGARDING FUTURE SALES AND REVENUES ARE NECESSARILY SPECULATIVE IN NATURE. IN ADDITION, PROJECTIONS DO NOT AND CANNOT TAKE INTO ACCOUNT SUCH FACTORS AS GENERAL ECONOMIC CONDITIONS, UNFORESEEN CHANGES AND DEVELOPMENTS IN PRODUCTS, THE ENTRY INTO THE COMPANY’S MARKET OF SIGNIFICANT ADDITIONAL COMPETITORS, THE TERMS AND CONDITIONS OF FUTURE FINANCINGS, AND OTHER RISKS INHERENT TO THE BUSINESS OF THE COMPANY. WHILE MANAGEMENT BELIEVES THAT ANY PROJECTIONS REFLECT THE POSSIBLE RESULTS OF THE COMPANY’S FUTURE OPERATIONS, SUCH RESULTS CANNOT BE GUARANTEED. INVESTORS MUST BE PREPARED FOR THE SUBSTANTIAL ECONOMIC RISKS INVOLVED IN AN INVESTMENT IN VALENS RESEARCH, LLC, INCLUDING TOTAL LOSS OF ANY INVESTMENT. THIS EXECUTIVE SUMMARY, INCLUDING THE ATTACHED EXHIBITS, IS CONFIDENTIAL AND IS INTENDED FOR THE SOLE AND EXCLUSIVE USE OF THE PERSON TO WHOM THIS EXECUTIVE SUMMARY HAS BEEN DELIVERED BY VALENS RESEARCH, LLC, TOGETHER WITH THE PROFESSIONAL ADVISORS OF EACH SUCH PERSON. ANY FURTHER DISTRIBUTION, DIVULGENCE OR REPRODUCTION OF THESE MATERIALS IS STRICTLY PROHIBITED. IN THE EVENT THAT THE RECIPIENT CHOOSES NOT TO FURTHER PURSUE AN INVESTMENT IN VALENS RESEARCH, LLC, THE RECIPIENT MUST PROMPTLY RETURN THESE MATERIALS TO VALENS RESEARCH, LLC.